US Dollar Index: Three reasons why DXY is unlikely to peak yet – BofA

US Dollar Index (DXY) is at 20-year highs. Still, economists at Bank of America Global Research maintain a bullish bias over the coming weeks due to three reasons.

Three broad themes support the DXY

“The US policy divergence theme is perhaps on its final stretch – evidenced by the muted response of US rates to the positive CPI surprise (airline prices notwithstanding). But the ECB and BoJ will ‘catch up’ only gradually and later this year – hardly sufficient for an imminent reversal in the DXY.”

"High energy prices, which have held the USD in good stead vs. the large importers in Europe and Japan, are likely to persist at least until 4Q – this is inextricably linked to the Ukraine crisis and possibility of EU sanctions on energy imports from Russia, which would weigh meaningfully on EUR.”

“The combination of China's zero-Covid policy and weaker CNY has meant China's import impulse for the rest of the world has ground to zero in YoY terms and will likely turn negative in the months ahead.”